A blushing King, Shirley Bassey and the unfortunate legacy of Warranty Insurance
This year the big talking point in the UK’s consumer insurance industry has been ‘Consumer Duty’. Fear not, this is not an essay on insurance regulation but it’s pleasing that the Financial Conduct Authority’s Consumer Duty principles are putting greater emphasis on insurers’ ability to justify that their products present genuine value and are appropriate for the customers to whom they’re marketed. Many of us hope that the rollout of the Consumer Duty framework, which began earlier this year, will lead to greater trust in the consumer insurance industry in the UK and a general raising of standards amongst legacy insurers.
Enter the blushing King
Going a little further back in time, King Henry VIII learned to his cost the perils of trying to short change customers, quite literally. In his quest to raise funds for his dwindling treasury, to fund wars and new wives, he and his ministers struck upon the idea of reducing the Sterling silver content in the coins in circulation and substituting it for cheaper copper. The ‘silver’ coins looked just the same as they left the mint but, after not very long in circulation, as the coins passed from hand to hand, the exterior silver began to rub away revealing the reddish copper beneath. The image of the King that was impressed upon the coin appear to go a bit pink; the King’s nose and cheeks appeared to ‘blush for shame’. Suddenly the man or woman on the street realised that not all coins were the same, and a crisis of confidence in British coinage ensued.
Whilst it was particularly shocking that the Royal Mint itself would seek to debase its own coinage, such practices were widespread elsewhere. The creation of the Goldsmiths Company and the Assay Offices were guaranteeing the quality of products purportedly made of or incorporating gold or silver long before the reign of Henry VIII. The Assay marks became, and remain, a form of warranty that the consumer can trust in the quality of the product they are buying. Many companies then and now issue their own warranties, usually taking the form that if, within a prescribed period of time, the buyer of a product discovers a fault in it they can return to the original retailer or manufacturer to receive a repair or replacement.
Enter the blushing insurer
Then came the fashion for warranties or ‘extended warranties’ that were actually insurance policies, usually sold alongside the product they were intended to ‘protect’. In return for the buyer paying a premium, the insurer would guarantee them a repair or replacement if the product malfunctioned or was discovered faulty within a certain period of time. Many of us have got used to being offered extended warranty or similarly named products at the checkout to protect against just such an eventuality: I buy my shiny new fridge or computer, I assume it will be good for at least four or five years, but if something goes wrong in the meantime I’ve protected myself against a hit to the pocket. The thing is, it shouldn’t, and it usually doesn’t. In many ways it’s a really odd way for a retailer or manufacturer to sell you a product. Put cynically, it’s a sales pitch of “This is a great product which you should buy, but because it might turn out to be a dud we’re encouraging you to pay extra to protect against this risk”. Surely if you’re a retailer that wants to sell great products to customers that perform in line with their expectations, then you’ll back yourself sufficiently to say that your customers don’t need to buy an insurance product that protects them against buying a dud from you?
Many of these insurance products are likely to struggle to prove they adhere to Consumer Duty principles; all too often, the products they are designed to ‘protect’ don’t go wrong and, if they do, the buyer has forgotten about or lost the documentation for the insurance product they bought for such an eventuality. The retailers are motivated to sell these warranty products, often, simply because they get a fat commission from the insurer for doing so, and the fact that insurers can afford to pay these chunky commissions probably tells you all you need to know about the value these products represent to consumers. Perhaps the insurers, like King Henry, should blush for shame?
Enter Shirley Bassey
Whether or not regulation gets to them first or not, consumer warranty products as a class are going out of fashion. Increasingly retailers want to differentiate themselves on quality, and the rise of internet reviews means that there’s no hiding from poor quality products and experiences in the long term. Retailers want to create trust in the products they produce to increase buyer confidence and, ultimately, use that confidence to sell more of their product to more people.
Shirley Bassey has become for ever associated with “Diamonds are Forever”, but even when she first warbled the words, the term exuded a timelessness of its own. In fact, the phrase was a mid-century creation of an ad agency copywriter for De Beers, the diamond mining and trading conglomerate. They wanted to create a new market for diamonds by accentuating their longevity. What better for an engagement ring? A more recent example would be the marketing of Patek Philippe, extolling that rather than owning a Patek you merely look after it for the next generation. In a way it’s a form of warranty: it’s a company saying “trust me in the quality of my product because I’m staking my reputation on it”.
Insurance that blushes for shame
Given the legacy of warranty insurance, for many of us, the offer of insurance at the point of sale carries about as much trust as one of Henry VIII’s dodgy coins did in the sixteenth century, and understandably so. But it shouldn’t be this way and Zing, which offers insurance at point of sale, is working to change perceptions. Zing does not offer insurance against a product being of poor quality. Instead, Zing protects the buyer against all those unforeseen events that can foreshorten their enjoyment of a purchase: the risk of it being accidentally damaged, lost or stolen.
It makes sense to offer insurance where consumers are most likely to want it. If you’ve just bought that diamond ring that you want to be forever, the last thing most people want to do is to retrieve the contact details of their insurer and sit on the phone ensuring it’s appropriately covered by their household policy. Consumers have a right to demand convenience. Unfortunately, even in this space there are a host of insurers offering narrow products designed to exclude the very things, like accidental loss or damage, that consumers expect to receive from a proper insurance product.
Zing vs Henry VIII
It should be possible to combine convenience with quality. Unlike warranty or limited coverage insurance products, Zing absolutely is not a cash cow for our partner retailers. Our partner retailers and manufacturers inform the creation and revision of our products and our service to ensure they are relevant to their customers. Their market expertise and data keep our customers’ insurance relevant as the market, product availability and prices change. And, of course, in the event of a claim our customers want the reassurance of knowing that they can return to their original retailer of choice to get the same quality of service and product that led them to choose that retailer in the first place.
Our partners understand that this gives their customers greater confidence in buying, owning and enjoying the products they sell and gives them meaningful, useful post-purchase engagement with their customers. In stark contrast to warranty or limited coverage products, Zing should boost buyer confidence in the same way as the conviction that a diamond is forever and a watch is intended to be passed down to the next generation. This is why quality retailers choose to partner with Zing, rather than for the chunky commissions paid by insurers of warranty and similar products. Yes, we do share a proportion of our revenue with our partners, that’s only fair as we share the advertising cost of reaching our mutual customers, but we never do so to the detriment of fair value to our customers. We’re transparent about all this because we don’t want the shine to wear off our reputation, and we certainly don’t want to be like those coins of Henry VIII which blushed for shame.